The Gavel Falls

On Aug. 3, 2007, the United States Court of Appeals for the Third Circuit broke what it called a 'virtual tie' among the New Jersey bankruptcy and district courts over the application of Bankruptcy Code section 1322(c)(1): whether a Chapter 13 debtor can cure a default on a mortgage secured by the debtor's principal residence between the time the residence is sold at a foreclosure sale and the time the deed is delivered to the successful bidder. In re Connors, __ F.3d, (3d Cir. 2007), 2007 WL 2215606. Although the Third Circuit resolved the rule for New Jersey, the issue exists in any state where the deed is delivered or further judicial proceedings contesting the foreclosures sale can occur after the foreclosures auction. In Connors, the debtor executed a note and mortgage on his New Jersey residence. He subsequently defaulted on the note and, at a foreclosure sale, the property was sold to a purchaser who had tendered the 20% deposit as required by
New Jersey state law. Four days later, the debtor petitioned for relief under Chapter 13 of the Bankruptcy Code and two weeks after that filed a Chapter 13 plan that proposed to cure the pre-bankruptcy arrearages on the note. The debtor did not, however, exercise his right to object to the foreclosure sale as allowed under N.J. Ct. R. 4:65-5 (which allows ten days to object to a foreclosure sale) or redeem the property within the 60-day grace period conferred by section 108(b) of the Bankruptcy Code.